2. Calculate the expected (required) return for each of the following stocks whenthe risk-free rate is 0.08 and you expect the market return to be 0.14.StockBetaBCAP ש ח ס חDE1.721.140.76F0.440.03-0.79

To calculate the expected (required) return for each stock, we can use the Capital Asset Pricing…

Answered: 2. Calculate the expected (required)…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 12P: Stock R has a beta of 1.5, Stock S has a beta of 0.75, the expected rate of return on an average...

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And what are the expected returns for stocks A and B if the conditions are as follows? A0 0.03 k1 0.09 k2 0.07 ba,1 1.5 ba,2 0.8 bb,1 1.2 bb,2 0.6
What are the expected returns for stocks Y and Z under the conditions shown below? A0 0.04 k1 0.07 k2 0.05 by,1 0.5 by,2 1.3 bz,1 1.2 bz,2 0.9
3. The following information is given with respect to stock A: Scenario Probability Market return 1 0.1 -0.18 2 0.3 0.07 3 0.4 0.16 4 0.2 0.21 Knowing that the Rfis 0.07 compute alpha and the information ratio. Portfolio P return -0.32 0.00 0.22 0.40
A stock has an expected return of 0.15, its beta is 0.52, and the expected return on the market is 0.08. What must the risk-free rate be? (Hint: Use CAPM) Enter the answer in 4 decimals e.g. 0.0123.
b) Suppose that you observe the following information in Table 2 for stocks A and B: Table 2 Expected Return (%) 11% Stock Beta A 0.8 В 14% 1.5 The risk-free rate of return is 6% and the expected rate of return on the market index is 12%. Using the Single-Index Model, calculate the alpha of both stocks. Show your calculations. Explain what the alpha of the single-factor model represents and interpret your results.
2
Suppose S $96, K = $100, u = 1.03, d = 0.97, and R = 1.02. The risk-neutral probability, q, that the stock price will increase is: O -0.8000 O 0.1667 1.2000 O 0.8333
Suppose that three stocks (A, B, and C} and two common risk factors (1 and 2) have the following relationship: E(RA) = (1.1)A1 + (0.8)A2 E(RB) = (0.7)A1 + (0.6)A2 E(RC) = (0.3)A1 + (0.4)A2 a. If A1 = 4 percent and A2 = 2 percent, what are the prices expected next year for each of the stocks? Assume that all three stocks currently sell for $30 and will not pay a dividend in the next year. b. Suppose that you know that next year the prices for Stocks A, B, and C will actually be $31.50, $35.00, and $30.50. Create and demonstrate a riskless, arbitrage investment to take advantage of these mispriced securities. What is the profit from your investment? You may assume that you can use the proceeds from any necessary short sale. Problems 13 and 14 refer to the data contained in Exhibit 7.23, which lists 30 monthly excess returns to two different actively managed stock portfolios (A and B) and three different common risk factors (1, 2, and 3). {Note: You may find it…
K (Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Probability 0.20 0.60 0.20 Common Stock B Return 13% 17% 18% Probability 0.10 0.40 0.40 0.10 (Click on the icon in order to copy its contents into a spreadsheet.) Return -7% 5% 16% 21% www a. Given the information in the table, the expected rate of return for stock A is 16.40 %. (Round to two decimal places.) The standard deviation of stock A is 1.74 %. (Round to two decimal places.) b. The expected rate of return for stock B is 9.8 %. (Round to two decimal places.) The standard deviation for stock B is 6.12 %. (Round to two decimal places.)
For part B, is it meant to be the expected return on the stock in all market conditions or should I be using the expected return depending on the market? e.g. instead of using 0.07 for each of the stocks, using 0.05, 0.06 and (0.04)
1. Consider the three stocks in the following table. P, represents price at time t, and Q, represents shares outstanding at time t. Calculate the rates of return on the following indexes of the three stocks: A B с Po 90 50 100 a. A market-value-weighted index. b. An equally weighted index. Qo 100 200 200 P₁ 95 45 110 Q₁ 100 200 200
4) Assume rhat the risk-free rate is 5.5% and the market rate premium is 6%. A) What is the required retuen for the overal stock market? Round 2 decimal places B) what is the required rate of return on a stock with beta of 1.7? Round your answer 2 decimal places

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